These Funds Suggest the Muni Bond Fire Sale is Over

By Brendan Conway

A 22nd straight week of fund outflows suggests investors’ municipal-bond fire sale is not quite over. But exchange-traded funds and at least some closed-end funds are starting to act like it is indeed over.

iShares National AMT-Free Muni Bond ETF (MUB), the biggest ETF for the $3.7 trillion market, is selling at the smallest discount to fair value since July, reports Michelle Kaske for Bloomberg News. The 0.03% discount observed on Oct. 23 is a far cry from the record 2.86% seen during June.

Now here’s a year-to-date chart of how SPDR Nuveen S&P High Yield Municipal Bond ETF (HYMB) trades versus fair value. This ETF, which bore the brunt of some of the heaviest mid-year bond selling, is also right back at even.

A value of “100″ on this chart means buyers and sellers are transacting at fair value. At last check the figure is 100.08. FactSet Research Systems shows the figure dipped as low as 95 in late June — meaning back then, the market extracted a 5% penalty from sellers.

But CEFs that spent some of the year trading below NAV lately are above it. This group includes BlackRock MuniYield (MYD), Pimco Municipal Income II (PML), and Neuberger Berman Intermediate Municipal Fund (NBH).

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OCTOBER 28, 2013 1:29 P.M.

Wes wrote:

NBH is still trading at a 1.03% discount to NAV, not a premium, but only yields 5.83%. PML & MYD deserve their slight premiums to NAV of 1.01% & 1.75% , respectively, since even at current share prices they have peer-group-leading yields of 7.06% & 7.18%, respectively, and both have healthy positive UNII values.

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Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.